Accounting for Entrepreneurs: What You Need to Know

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Regardless of whether your business investment came from bootstrapping strategies or venture capitalists, you can’t afford to increase the budget or rack up the debts that your business might not be capable of repaying. Simultaneously you can’t ignore the sales and profit statements by appointing someone in charge of them. It is where accounting for entrepreneurs becomes mandatory.

Even the initial accounting practices help the fresh entrepreneurs stay on track and prioritize the financial business dealings. Consider a few things like proper budgeting, bookkeeping, and monetary literacy to help entrepreneurs manage their financial liabilities smartly. These strategies also represent a business’s profitability. LasPass – Family or Org Password Vault If entrepreneurs illustrate financial returns on the investor’s contributions, they might provide additional funding for the company’s welfare.

Being an entrepreneur, if you seek permanent business viability, know that accounting is the smartest and essential skill set. As the owner of the business venture, entrepreneurs must supervise the operational activities and business dealings. But what type of accounting operations do they need to master? Here’s a list of pointers that you should know for every entrepreneur out there.

  1. Accounting methods:

 The first thing you need to figure out is selecting a proper accounting method for your business. There are two basic methods, cash, and accrual. The primary difference between them is the identification of economic strategies by a company.

  • Accrual method: In this method, you record the impending profits and earnings although you haven’t received the income yet. Moreover, companies generally avoid this method.
  • Cash method: This method is virtually identical to the way that you manage your checking account. You record the income when it is received, and you record the expenditures as you pay them. Download A Free Financial Toolkit
  1. Financial statements:

There are numerous reports your accountant reviews, including the report of account receivables and account payables. However, three financial statements should be reviewed only by you. The three financial statements include the income statement, the balance sheet, and the cash flow statement. Although some enterprises choose to create these statements quarterly or annually, you should review them monthly as an entrepreneur. 

  1. Debit and Credit accounts:

Another significant accounting operation includes the double-entry system. Precisely, it states that every transaction influence two accounts. For instance, when an entrepreneur signs a check to pay the rent of his office building, he is affecting his bank balance and the account affiliated with the property rental expenses.

Debit either multiplies the expenses and asset accounts or lessens a liability account. Credit generally decreases the costs or increases the liability account. Therefore, you would debit your rent expense account and credit your bank account. Entrepreneurs’ must deal with these accounts themselves to know the worth of their assets and the cost of the liabilities. 

  1. Cost principle:

The cost principle operation is one of the most challenging concepts to understand for many fresh entrepreneurs. Primarily, it states that the cost of an asset will always be recorded at its purchase price even if the asset’s value increases or decreases. The alterations in the asset’s value can be recorded to shoe depreciation or identify a loss or gain on the sale of an investment. An automobile is a decent example of an asset that will always depreciate. Exit Advisor

  1. Common currency principle:

Usually referred to as the monetary unit principle, this is a GAAP requirement that all operations share a common currency. Suppose that you own a business in the U.K, but you extend the credit to a customer in the USA. The client transmits a check that is drawn on USA bank and is in American dollars. Since all your financial activities are in American dollars, you must convert the client’s payment to get attached to the common currency principle.

Entrepreneurs need to have a basic understanding of the financial operations of their business. Also, if you have a sound knowledge of accounting operations, you will be able to ask relevant questions from your accountant and spot errors in the financial records and statements. Moreover, if someday your accountant retires or leaves the position, you will immediately handle the accounts until another accountant arrives.

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